Don’t Want to Give Up Your Avocado Toast? How Millennials Should Save for Retirement

Saving for a comfortable retirement doesn't have to mean a radical lifestyle makeover.

How much should millennials save for retirement (especially without giving up beloved treats, like avocado toast at your favorite brunch spot)? That’s the $1 million question and, if you’re a millennial, you’re probably looking for a hint so you can get your finances into shape.

Ultimately, how millennials should save for retirement depends on their income, debt, long-term financial goals and what options they have for stashing money away for the future. Even if it seems way too far off to worry about, numbers don’t lie: The earlier you start saving, the smaller are the amounts you have to sock away at any one time, and the more you will ultimately have when it comes time to kick back in retirement.

Still, 46 percent of millennials say they can’t afford to invest for the future, including by putting money into a retirement account, according to a Bankrate survey. Another survey, conducted by GOBankingRates, found that between 41 percent and 46 percent of millennials, depending on their age, had $0 saved in 2017.

How millennials should save for retirement depends on their income, debt and long-term goals.

If you’re struggling to find the cash to save and running into obstacles to millennials saving for retirement, don’t fret. With simple changes, it’s possible to get your savings on track without committing to a total lifestyle makeover (you can still order that avocado toast this weekend). Here’s how:

1. Strike a balance between student debt and savings

Student loan debt is one of the biggest obstacles to millennials saving for retirement. As of September 2017, the average graduate from the class of 2016 owed more than $37,000 in student loan debt, according to Student Loan Hero. That’s a 6 percent increase from the year prior.

The interest rate on your loans is a huge factor when deciding how much should millennials save for retirement, says Michael Lux, an Indianapolis-based attorney and the founder of the Student Loan Sherpa, a website dedicated to student loan education, strategy and borrower advocacy.

“If you have a student loan with a 3.00% interest rate, it makes sense to invest in retirement rather than aggressively paying down the debt,” Lux says. “However, if you have high interest rates on your student loans, money used to pay down the debt will go much further than many investments.” So if your loans carry a higher rate than what your investments are earning before taxes, you may get more bang for your buck by accelerating your debt payoff.

While you can’t wave a magic wand to get rid of your loans, you can sometimes find a way to make them less taxing on your wallet. Consolidating or refinancing your loans at a lower rate could offer savings by potentially reducing your monthly payment or interest rate. If you’re able to lower your payment without stretching out the loan term, you could use the extra money to start compounding your savings for retirement.

2. Track your spending

Keeping tabs on spending can go a long way toward overcoming the obstacles to millennials saving for retirement.

Kevin Michels, a certified financial planner with Medicus Wealth Planning in Draper, Utah, says having a clear understanding of your cash flow can help you find the money to save.

Using a financial app like Mint or Personal Capital can take the hassle out of tracking your spending. These apps link with your checking and credit card accounts to record your purchases so you can see at a glance where your dollars and cents are going.

Tracking spending can help identify how much millennials should save for retirement.

Michels says once you understand what your current financial picture looks like, you can aim to improve it. This can help answer the question of how much should millennials save for retirement.

“Can you cut out unnecessary expenses or increase your income with a side hustle?” he says, suggesting gigs like freelancing, moonlighting as a ride-sharing driver or hiring out your services on TaskRabbit, an online marketplace that connects consumers with people willing to lend a hand with everyday tasks. “Figure out exactly how much you can add in surplus each month to go toward saving for retirement.”

Once you’ve added income where you can, and if you feel like you still want to trim your expenses, taking a closer look at your discretionary spending might reveal some easy ways to save on everyday expenses. If you pay for a monthly gym membership, for example, perhaps you could change up your workout routine and start running or do yoga at home instead. If you go out to eat regularly with friends, consider swapping a night out for a potluck dinner or an at-home Sunday brunch—avocado toast and all—to save cash. Finding money for retirement doesn’t mean giving up fun completely. You may just need some new ways to approach it. This could help eliminate obstacles to millennials saving for retirement.

46 percent of millennials say they can’t afford to invest for the future, which includes putting money into a retirement account.

– Bankrate survey

3. Cash in on your employer’s retirement plan

Figuring out how millennials should save for retirement begins with understanding the options. If you have access to a retirement plan at work, that’s a great place to start, says Jake Serfas, lead financial strategist at financial planning firm OWRS in Washington, D.C.

“A 401(k) offered through your employer can be your biggest tool in terms of saving money and preparing for retirement,” he says. Contributions to a 401(k) are deducted from your taxable income, potentially reducing your tax liability for the year. And you can use a 401(k) to grow your retirement savings faster if your employer offers a matching contribution. Not capitalizing on your employer’s 401(k) plan is actually a common retirement savings mistake.

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So how much should millennials save for retirement in their employer’s plan? Serfas says you should at least be saving enough to get the match, if there is one. Matching formulas can vary, but one common match is dollar-for-dollar on the first 6 percent of employee contributions. When you don’t chip in enough to get the match, you’re leaving money on the table.

But what if you don’t have a 401(k) at work? In that case, you could open an Individual Retirement Account (IRA) or an IRA CD. Both offer millennials a tax-advantaged way to save for retirement.

Using an employer-sponsored retirement plan is a good option for millennials looking to save for retirement.

4. Don’t be afraid to start small

Getting past the obstacles to millennials saving for retirement sometimes means having to work on a small scale to achieve your big-picture goal.

Michael Banks, founder of The Fortunate Investor, a personal finance and investing blog, says to answer the question of how much should millennials save for retirement, you need to have the right perspective.

“There’s no minimum amount required to start saving for retirement,” Banks says. “Even $20 a month is good, if you invest it in the right places.” Banks suggests micro savings apps, which allow you to invest your spare change in various diversified investments. Banks says the convenience of being able to track your investments from a mobile device may be especially appealing to on-the-go millennials.

“The amount you’re saving isn’t what’s important,” Banks says. “What matters most is saving consistently, early and often.”

Don't let the obstacles to millennials saving for retirement prevent you from reaching your goals.

Set goals to avoid obstacles to millennials saving for retirement

The question of how millennials should save for retirement doesn’t have a one-size-fits-all answer. Setting goals based on where you are financially can help you reach your retirement savings objective. Making small changes can help you keep the ball moving toward your ultimate goal of a comfortable retirement without feeling overwhelmed.

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